Rent, deposits, and occupancy cost

Item 7 often contains a real-estate line, but that does not mean the total contains the lease obligation. The row may cover a security deposit, utility deposits, a short period of prepaid rent, a brokerage charge, or some combination. Recurring rent over the lease term remains an operating cost.

The distinction follows the purpose of Item 7. The FTC’s Franchise Rule compliance guide defines initial investment around opening and the initial operating period; it expressly distinguishes future rent over the life of the agreement. A small deposit line can therefore sit inside a large long-term occupancy commitment without contradiction.

The league table at the end of this chapter sums every real-estate-bucket row in a filing. Deposits and prepaid amounts uses the same bucket to separate security deposits from prepaid rent and from the monthly occupancy model. The two chapters share the injected comparison on purpose: the labels are the same, the questions are not.

What the filings actually named

Brand	Filing labels	Low	High
German Doner Kebab	Lease, Utility & Security Deposits; Property Agent	$25,000	$30,000
Shah’s Halal Food	Real Property	$3,000	$10,000
The Great Greek	Real Estate Lease Deposits; Real Estate Service Charge	$5,000	$19,500
Mad for Chicken	Lease & Utilities deposits	$15,500	$37,500
375° Chicken ‘n Fries	Lease & Utilities deposits	$10,000	$30,000
Döner Haus	Rent Deposits; Utility Deposits	$18,000	$40,000

GDK’s property-agent row is $0–$0. The $25,000–$30,000 range is entirely the deposit line. Great Greek’s service charge is $0–$3,500; the deposits are $5,000–$16,000. Adding those two Great Greek rows is fair because the filing split them. Renaming Shah’s Real Property as “deposits” is not: the label is broader, the amount is smaller, and the footnote in the issued FDD is the only public explanation of what $3,000–$10,000 covers.

None of these rows is monthly rent. GDK’s high deposit of $30,000 against a $1,123,000 high total is 3 percent of the opening estimate and says nothing about whether the lease is $4,000 or $14,000 a month. Mad for Chicken’s $15,500–$37,500 is the widest deposit band among the itemised filings and still is not an occupancy model for a 2,000–4,000 square-foot restaurant.

Great Greek also folds Utility Deposits/Licenses into a $1,000–$3,000 licenses-bucket row. Utility deposits can therefore appear in real estate (GDK, Mad for Chicken, 375°) or in licenses (Great Greek). The licenses and permits chapter keeps Great Greek’s combined label intact rather than guessing a split.

Separate the first checks

Build a schedule for each amount due before and around opening:

• security deposit held under the lease;
• first month’s or prepaid rent;
• utility deposits;
• key money or acquisition payment, if any;
• legal, brokerage, and guaranty costs;
• rent during design, permitting, and construction;
• common-area, tax, insurance, or other pass-through estimates; and
• storage or temporary-space costs created by delays.

Some amounts may be refundable, some credited, and some earned immediately. The Item 7 amount column alone does not answer which. Read “when due,” “to whom paid,” and the footnote, then match each item to the lease.

GDK’s deposit line is the closest to that checklist in wording — lease, utility, and security deposits in one label. Shah’s Real Property is the furthest. A buyer who treats Shah’s $3,000 low as “cheap rent” has misread both Item 7 and the lease. Minnesota’s public Shah’s Halal filing is the document that shows how that row sits next to an $80,000–$160,000 build-out line: the premises cost is in construction, not in real property.

Model total occupancy cost

Base rent is only the beginning. Depending on the lease structure, the tenant may also pay a share of common-area maintenance, property tax, building insurance, utilities, waste, security, repairs, management charges, and percentage rent. The City of Seattle’s public commercial lease tool explains minimum rent, percentage rent, and operating-expense pass-throughs and provides questions for reviewing how they are calculated.

Convert every recurring component into a monthly cash schedule. Keep base rent, estimated pass-throughs, utilities, and percentage rent separate so escalation and sensitivity are visible. A per-square-foot quote is not comparable until the rentable area, expense basis, annual increases, free-rent period, and percentage-rent definition are known.

That monthly schedule is what working capital has to fund during the initial period. GDK’s additional-funds line is $15,000–$20,000 for three months. If occupancy alone is $8,000 a month, three months of rent already exceeds the high reserve before labor, goods, or royalties. The Item 7 real-estate row did not hide that; the additional-funds footnote either assumed a different occupancy cost or assumed the reserve was never meant to cover it. Either way, the lease — not the deposit cell — is the input.

Construction time is occupancy time

The lease should identify what starts rent: execution, delivery, possession, permit issuance, completion of landlord work, or opening. A delay can consume free rent and working capital before revenue begins. Tenant-improvement reimbursement can arrive only after lien waivers, inspections, and proof of payment, leaving the operator to fund both construction and occupancy in the meantime.

Second-generation premises can reduce construction while carrying higher rent, an acquisition payment, or inherited repair obligations. A shell may offer a larger allowance but require a longer build. Item 7 cannot decide which lease has the better economics because it does not model the full term. The second-generation versus shell and tenant-improvement allowance chapters take those tradeoffs in order; this chapter only insists that the occupancy clock and the construction clock be drawn on the same calendar.

Use the filing without overreading it

On generated cost pages, the original real-estate labels remain unchanged: “Lease & Utilities deposits,” “Real Property,” and “Real Estate Lease Deposits” are shown as the filings state them. They should not be renamed “rent” simply to make the rows line up.

Guaranties and letters of credit sit next to deposits and are often larger. A personal guaranty is not a cash outlay until it is called, but a letter of credit is cash collateral the bank will hold. Item 7 real-estate rows in this dataset do not name letters of credit. If the landlord requires one in place of a cash deposit, the opening cash need can exceed GDK’s $25,000–$30,000 deposit line or Mad for Chicken’s $15,500–$37,500 without contradicting the filing — the filing estimated a deposit, and the lease demanded collateral instead.

Percentage rent, when the lease has it, is the occupancy cost Item 7 is least able to see. It is a function of sales after opening. It belongs in the monthly model as soon as the ramp is projected, and it does not belong as a plug in the deposit cell. The Seattle lease tool’s questions about how percentage rent is calculated — what is included in gross sales, whether delivery commissions are deducted, whether there is a natural breakpoint — are the questions. GDK’s additional-funds high of $20,000 will not absorb an unmodeled percentage-rent month.

Treat the Item 7 real-estate figure as the disclosed opening cash estimate. Treat the signed lease as the source for deposit conditions, commencement, escalations, pass-throughs, guaranties, improvement funding, and the long-term occupancy obligation. Both belong in the file, but they answer different questions.

Copy the filing’s real-estate labels and amounts onto the worksheet without renaming them. List every pre-opening occupancy check from the lease, including prepaid rent and deposits that Item 7 may have combined. Write down what starts rent, what the free-rent period covers, and whether construction days count. Convert base rent, estimated pass-throughs, utilities, and percentage rent into a monthly schedule for the Item 7 initial period and for the first full year. Compare that monthly total with the additional-funds line for the same period. Recent franchisees are the check on what they paid to occupy the space before the first week of sales, as the FTC’s FDD walkthrough recommends.

A personal guaranty next to a small deposit row is still a full occupancy obligation. Item 7 counted the check; the lease counted the term. Percentage rent, pass-throughs, and the commencement date remain lease facts.

The injected comparison below sorts brands by the high real-estate estimate. Use it to see the labels. Use the lease to see the rent.